The consequences of Covid-19 will be felt for years to come, but it is clear already that multinational companies and investors are turning their attention back to the world’s youngest continent – and with good reason.
Speaking at EY’s Africa Tax Summit 2021 which was held last week, Larry Eyinla, EY Africa Tax Leader, said: “Investors have for years followed Africa’s notable and durable demographic trends. And now as Covid is hopefully receding they are once again focusing on Africa’s distinctive appeal which has been brought into stark relief by the pandemic.
“In the coming decades Africa will be the world’s only source of a growing labour forces and consumer bases. It is the world’s youngest continent, and stands out in a world of ageing and shrinking populations.”
He added the big question for Africa post COVID is where it lands in the global reset.
“There’s an opportunity for us to get the right policies in place and capitalise like never before. The pandemic, and governments’ response to it, certainly paused the world’s interest in Africa but now the attention is back on the continent because of the opportunities it offers. There have been many false starts for Africa; now is the time to catch the wave of renewed investor interest.”
He noted that multinationals are increasingly planning for this, He cited increased investments in start-ups in the fintech sector across the continent, and recent commitments by large tech companies including Microsoft, Google and Oracle, to invest in tech infrastructure and skills.
“The majority of investments are now aimed at participating in African economies rather than exporting local resources for use elsewhere. For example, the African auto market which is traditionally dominated by used-car sales is receiving interest for new car capacity with assembly plant announcements by auto giants such as VW and Toyota.”
Extractive sectors, which are based on extracting and selling natural resources, are no longer the primary source of Foreign Direct Investment (FDI) into Africa.
The forces shaping Africa’s economic outlook are also a mix of continuity and change, but with some idiosyncratic features. “Generational gains in political stability and growing capacity in democratic institutions across the continent had helped to push FDI to a historic high in 2019, and that trend is likely to resume into 2022,” Eyinla said.
However, the biggest potential for change remains the still low level of trade amongst African countries.
The new, ambitious African Continental Free Trade Area (ACFTA), free-trade deal for the continent, promises myriad opportunities for those countries with the right policy mix in place.
The trade pact commits the 54 signatory countries to removing 90 percent of tariff lines for goods as well as for services. Implementation was to begin just as the pandemic shut down the global economy in March 2020, and leaders committed to a short delay rather than a long one.
“Whether it will now progress depends on sufficient amounts of political will during the challenging implementation stages. Governments hopefully will overlook the short-term loss of tariff revenue in order to achieve the long-term boosts to revenue from far greater intra-Africa trade.”
An increasing ability to deploy digital technologies and telecommunications networks has helped some governments to distribute aid to populations quickly and efficiently.
“This growing capability is a by-product of the underlying gains in political stability – whilst democratic transitions are fresh and fragile in many countries on the continent, the drop in the number of coups and the rise of peacefully-conducted elections has freed civil servants across ministries and institutions to do their jobs and bring better services and technology to many more Africans.
“Preserving this political stability and building on governance gains will be crucial,” Eyinla concluded.